CAN A GIFT DEED BE CHALLENGED IN INDIA

CAN A GIFT DEED BE CHALLENGED IN INDIA

Yes. A Gift deed being an instrument for transferring the rights in the property can be challenged in India.

Gift:                A gift is a gratuitous transfer of property by a donor to a donee voluntarily.

Gift Deed:     A legal document describing the transfer of property. A gift deed is an agreement between the two parties (donor and donee) for transfer of right in the property.

Essentials to make a gift valid:

  • Property: The property to be gifted can be moveable or immovable. It must be an existing property. Future property cannot be transferred
  • Acceptance of gift: The gift has to be accepted by the donee or on his behalf. If the gift is not accepted during the lifetime of the donor, it is invalid. If the donee dies without accepting the gift, it becomes void.
  • Parties must be competent to contract: Donor has to be a person capable of making a contract.  A minor cannot be a donor. However, a minor can be a donee. In such a case, the gift has to be accepted by a guardian on his behalf.
  • Consideration:  There is no consideration in gift. There can be a conditional gift such that the condition is not based on donor’s will or pleasure. The conditional gifts are incomplete until conditions are complied with. 
  • Voluntarily: Gift has to be made with free consent. Free consent implies the absence of :
  • Fraud
  • Coercion
  • Misrepresentation
  • Undue influence
  • Registration: A gift deed made for transferring immovable property has to be registered compulsorily as per The Registration Act, 1908.  The gift deed has to be signed by the parties and attested by two witnesses.

When we gift any moveable property, gift deed is not mandatory. The gift deed even if made, may or may not be registered but delivery and acceptance is a must.

Grounds for challenging the Gift Deed:

A gift deed can be challenged if any of the above mentioned legal requirements for making a gift transaction valid have not been complied with, like:

  • Consent was not free.
  • Gift deed not executed and registered as per legal provisions
  • Parties not competent to contract
  • Consideration is present.
  • Acceptance not made
  • If the gift is conditional and the condition is not fulfilled, gift deed can be revoked.

Revocation of gift deed:

  • Gift deed can be revoked by the donor for any legally valid reason as available for rescinding the contract.
  • Revocation by agreement – Donor and donee may agree at the time of making the gift that the gift can be revoked on the happening of an event which is not dependent on the will of the donor. The condition for revoking the gift should be made clear to the donee at the time of executing the gift deed. The unilateral revocation of the gift is not possible.
  • If the gift is incomplete and the title remains with the donor, the gift deed can be cancelled by the donor.

When to file suit for cancellation of gift deed:

A civil suit for cancellation of a gift deed can be filed within three years of coming to the knowledge of the fact that there exists a ground to challenge the gift deed.

A gift deed can also be cancelled by executing a cancellation deed if both parties agree.

How to Make Gift Deed in Gujarat?

How to Make Gift Deed in Gujarat Front

An owner of the property can transfer the same in many ways like Will, Gift or Sale.

Among family and friends, the property is usually transferred by way of executing a Gift Deed. 

The process of Gift deed creation is generally the same in all the States of India. There are certain requirements which are specific to each state, e.g. the criteria for imposing Stamp duty varies from State to State. The difference is there in stamp duty, and registration charges as States can charge Stamp duty and registration fees as per their revenue requirement.

For Gift deed in favour of blood relations, most of the States charge nominal Stamp duty and registration fees. In some states, there is a complete waiver also.

The process of gift deed creation requires:

  • Drafting of gift deed on stamp paper- In the drafting of Gift deed, the value of stamp paper depends upon the value of the property to be gifted. The gift deed must mention that gift is being made voluntarily and without any consideration. The donor must be solvent.
  • Signature of donor and donee on the deed – signature of the donee on the deed signifies the acceptance of the gift by the done which is necessary to make the gift valid. Acceptance of gift must be made during the lifetime of the donor otherwise the gift is rendered invalid.
  • Attestation by witnesses
  • Payment of stamp duty and registration charges

Under section 17 of the Registration Act 1908, registration of a Gift Deed is compulsory.  The stamp duty and the registration charges payable in each State are different and therefore, it is better to consult a local lawyer for making a gift deed.

Read: How Does Religious Conversion Affect Property Rights?

Moveable property can be gifted without any deed. Delivery and acceptance of the moveable property complete the gift transaction.

In the State of Gujarat:

  • Stamp duty payable is governed by the Bombay Stamp Act, 1958 as applicable to the State of Gujarat.
  • Stamp duty payable is 3.5 % of the market value of the property being gifted.
  • Surcharge @ 1% is also applicable over the stamp duty basic rate
  • Registration charges are paid in addition to the stamp duty.

Stamp duty payable depends upon the value of the property to be gifted. Valuation of property should be carried out by experts in the field to calculate the correct stamp duty.

In the state of Gujarat:

  • Draft models of gift deed are present on the official website, in English as well as the Gujarati language.
  • Property can be registered online also.
  • There is a provision for e-payment of Stamp duty and registration charges.

Since the registration of the deed of immovable property is mandatory, unregistered deed is not recognised in law. Therefore, it is advisable to register it as per the prevalent State Laws. In case, the gift deed of immovable property is not registered, the title does not pass to the donee. For Registration, the Gift deed is presented to the office of the local Sub -Registrar within whose territorial jurisdiction, the property or a portion of the property to be gifted lies.

Important points: In the State of Gujarat –

  • There is a penalty of 200% of the value of the gift deed executed, for evading stamp duty.
  • After GST, there is no impact on stamp duty and registration fees.

Tax implications on a gifted property

Gifting a property is a kind gesture, and it is better to be aware of tax implications for gifting a property.

We had a case where Mr Bhushan, an NRI was gifted with land situated in India by his father, a resident Indian. He wanted to know:

  • If a land in India can be gifted by his father who is a resident Indian
  • The legal requirements to complete this gift transaction
  • Tax implications

Our advice and guidance – Parties to a gift deed:

  • Donor (giver)
  • Donne (recipient)

Donor or Donne can be a Resident Indian or an NRI or a PIO.

Which property can be gifted: Any movable or immovable property like –

  • Land /Building
  • House
  • Jewellery
  • Shares and Securities
  • Paintings, Drawings, Sculptures – Any other work of art
  • Archaeological Collections

Agricultural Land, Farmhouse and Plantation Property in India cannot be gifted to NRI.

Legal Requirements for gift deed:

A gift is a voluntary transfer of movable or immovable property without consideration, by a donor to donne which is accepted by the donne during the lifetime of the donor. For a gift deed, we require:

  • Donor – voluntary transfer
  • Donne – acceptance of a gift
  • Property to be gifted in existence
  • Gift deed preparation
  • Registration of gift deed

Tax Implications:

Both Donor and Donne are charged with the payment of tax as per Income Tax Act, 1961, under certain conditions mentioned as below. Tax is levied in the year in which the gift is received.

Tax Implications

  • Any rent received by the Donor on a gifted property is added to his income for tax purposes.
  • For calculating Fair Market Value and Stamp Duty Value, it is better to take advice from a tax consultant

Exemptions from tax in case of Gift:

  • If the aggregate value of the gift is less than Rs 50,000
  • Gift received from the relatives (list of relatives provided in the Income Tax Act) – No tax irrespective of the value of the gift. In the case of Hindu Undivided family, all members are relatives.
  • On Marriage of the recipient
  • Gift received by will or inheritance
  • From local authority
  • From Charitable Trust/Find/Institution as per the provisions of the Act

Details of Gift Deed Creation – and procedure in Punjab

Gift Deed Creation and procedure in Punjab

Gift of property is made without any monetary consideration. It is generally made to relatives out of love and affection. It is a transfer of ownership in property from one person to another.

In the recent past, during an interaction with a native from Punjab who was settled in the UK, we realised the complexities that arise while an individual wants to give estate to a child.

Confused by various incomplete sources of information and anxious about the exact legalities involved, he was keen to know the precise legal requirements for this document.

Our lawyers felt we needed to spell out these pointers for other such people too. The same are discussed below:

Meaning of Gift deed:

It is a legal document describing the transfer of property from the donor to the donee without any exchange of money. The donee becomes the absolute owner of the gifted estate. In case of onerous gifts, obligations are also transferred.

What can be gifted:

  • Moveable or immovable property
  • Tangible property
  • Existing Property

Parties in a deed:

  • Donor (the one who transfer property)
  • Donee (one who is the recipient)

Any person who is competent to contract can be a donor. A minor cannot make a gift of his estate.

The process of Creation of Gift Deed:

Act of Gifting:    The Donor must intend to make it voluntarily out of his free will without any monetary consideration.

The donor must be:

competent to make a contract, i.e. gift deed (minor cannot be a donor)
aware of his act and its implications

Acceptance: Donee must accept it during the lifetime of the donor and while the donor is still capable of making a gift.

Acceptance is shown by various acts like taking possession of property or taking possession of the deed. Possession can be actual or constructive. Mere silence also amounts to acceptance where silence signifies assent. A gift without acceptance is not complete.

Registration: Deed for transfer of immovable property has to be registered compulsorily otherwise the transfer of ownership is invalid. It has to be signed by both the parties and attested by witnesses.

Registration fee and Stamp duty have to be paid as per the applicable rates in a particular State.

Moveable estate can be gifted without any deed, but delivery and acceptance are necessary for completing the transaction.

Important points

  • It must mention the details of the donor and donee.
  • Property to be gifted must be described clearly
  • It cannot be revoked unless there is a clause of revocation in the deed itself.

As a special context, we are listing out some considerations for the state of Punjab, since some recent clients were natives of this state.

Process of registration in Punjab

The basic procedure of registration of this deed is the same in every State.

  • Preparing the Deed
  • Signing by Donor and Donee
  • Attestation by witnesses
  • Registration at Registrar’s office

State fixes stamp duty. It is different in different States.

The range of applicable stamp duty in Punjab is 0.5% to 6%.  There will not be any application fee charged in case the property is transferred to any blood relative within the lifetime of the donor. The blood relatives include the mother, father, spouse, son, daughter, brother, sister, grandson and granddaughter.